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Pizza Pizza Royalty Corp. Investor Presentation

Pizza Pizza Royalty Corp. · Traditional - Pizza Pizza Non-Traditional - Pizza Pizza Pizza 73 With over 730 restaurants across Canada, ... $30 million marketing budget is key to building

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Page 1: Pizza Pizza Royalty Corp. · Traditional - Pizza Pizza Non-Traditional - Pizza Pizza Pizza 73 With over 730 restaurants across Canada, ... $30 million marketing budget is key to building

Pizza Pizza Royalty Corp. Investor Presentation

Page 2: Pizza Pizza Royalty Corp. · Traditional - Pizza Pizza Non-Traditional - Pizza Pizza Pizza 73 With over 730 restaurants across Canada, ... $30 million marketing budget is key to building

Forward-Looking Statement

• This presentation will contain forward-looking statements.

• Investors should be aware that any forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those disclosed here today.

• Investors are directed to the Company’s Annual Information Form for a full discussion of risks.

• Management does not intend to discuss any undisclosed material information today.

2

Page 3: Pizza Pizza Royalty Corp. · Traditional - Pizza Pizza Non-Traditional - Pizza Pizza Pizza 73 With over 730 restaurants across Canada, ... $30 million marketing budget is key to building

3

Curt Feltner Pizza Pizza Limited

Chief Financial Officer

Page 4: Pizza Pizza Royalty Corp. · Traditional - Pizza Pizza Non-Traditional - Pizza Pizza Pizza 73 With over 730 restaurants across Canada, ... $30 million marketing budget is key to building

Overview

• Pizza Pizza Limited

• Business Fundamentals

• Restaurant Growth and Concepts

• Innovation

• Social Responsibility

• Pizza Pizza Royalty Corp.

• Restaurant Royalty Structure

• Financial Results

• 2015 Transactions

• Summary

4

Page 5: Pizza Pizza Royalty Corp. · Traditional - Pizza Pizza Non-Traditional - Pizza Pizza Pizza 73 With over 730 restaurants across Canada, ... $30 million marketing budget is key to building

Business Fundamentals

• Canada’s #1 pizzeria

• Seasoned management team

• Strong and proven business model

• Powerful brands

• Geographic diversification

• Modernized restaurant chain

• Innovation leader since 1967

5The private operating company pays a monthly royalty

for use of trademarks.

Page 6: Pizza Pizza Royalty Corp. · Traditional - Pizza Pizza Non-Traditional - Pizza Pizza Pizza 73 With over 730 restaurants across Canada, ... $30 million marketing budget is key to building

Turn-Key Franchise System

6

Pizza Pizza Limited performs all back office activity for our franchisees, allowing them to focus on the customer experience.

Pizza Pizza Limited

Centralized Distribution Centre

Centralized Site Selection

& Lease

Administration

Administration of

Payables

Weekly Sales Auditing

Centralized Order

Processing Centre

Centralized Marketing Team

Page 7: Pizza Pizza Royalty Corp. · Traditional - Pizza Pizza Non-Traditional - Pizza Pizza Pizza 73 With over 730 restaurants across Canada, ... $30 million marketing budget is key to building

Pizza Pizza honoured with industry and consumer choice awards. 7

Page 8: Pizza Pizza Royalty Corp. · Traditional - Pizza Pizza Non-Traditional - Pizza Pizza Pizza 73 With over 730 restaurants across Canada, ... $30 million marketing budget is key to building

505 531616 640 671 695 694690 723

Number of Restaurants

8

732

0

200

400

600

800

05 06 07 08 09 10 11 12 13 14

10294898988

817257

222231219225228216199192176165

408398386376379374369367355340

Traditional - Pizza Pizza Non-Traditional - Pizza Pizza Pizza 73

With over 730 restaurants across Canada, we serve over 33 million customers annually.

Page 9: Pizza Pizza Royalty Corp. · Traditional - Pizza Pizza Non-Traditional - Pizza Pizza Pizza 73 With over 730 restaurants across Canada, ... $30 million marketing budget is key to building

9

21

418

55338

9

1

1

96

3NFLD

Canada’s #1 Pizza Franchise

9Building a national presence outside our core

Alberta and Ontario markets.

Page 10: Pizza Pizza Royalty Corp. · Traditional - Pizza Pizza Non-Traditional - Pizza Pizza Pizza 73 With over 730 restaurants across Canada, ... $30 million marketing budget is key to building

TM

Sponsorships Non-traditional locations

Special Events

Non-traditional Partnerships Build Brand Awareness

Partnering with major sports arenas, entertainment venues and special community events provide marketing and business opportunities. 10

Page 11: Pizza Pizza Royalty Corp. · Traditional - Pizza Pizza Non-Traditional - Pizza Pizza Pizza 73 With over 730 restaurants across Canada, ... $30 million marketing budget is key to building

11

The Pizza 73 brand dominates the Alberta pizza market.

Page 12: Pizza Pizza Royalty Corp. · Traditional - Pizza Pizza Non-Traditional - Pizza Pizza Pizza 73 With over 730 restaurants across Canada, ... $30 million marketing budget is key to building

12

Page 13: Pizza Pizza Royalty Corp. · Traditional - Pizza Pizza Non-Traditional - Pizza Pizza Pizza 73 With over 730 restaurants across Canada, ... $30 million marketing budget is key to building

Consumer Preferences

13New international flavours satisfy consumer cravings.

Page 14: Pizza Pizza Royalty Corp. · Traditional - Pizza Pizza Non-Traditional - Pizza Pizza Pizza 73 With over 730 restaurants across Canada, ... $30 million marketing budget is key to building

Product Quality

14Pizza Pizza’s R&D team source

the highest quality and freshest ingredients.

Page 15: Pizza Pizza Royalty Corp. · Traditional - Pizza Pizza Non-Traditional - Pizza Pizza Pizza 73 With over 730 restaurants across Canada, ... $30 million marketing budget is key to building

Product Innovation

15$30 million marketing budget is key to building sales.

Page 16: Pizza Pizza Royalty Corp. · Traditional - Pizza Pizza Non-Traditional - Pizza Pizza Pizza 73 With over 730 restaurants across Canada, ... $30 million marketing budget is key to building

Technological Innovation

16Partnering innovation with consumer convenience

leads to sales growth.

Page 17: Pizza Pizza Royalty Corp. · Traditional - Pizza Pizza Non-Traditional - Pizza Pizza Pizza 73 With over 730 restaurants across Canada, ... $30 million marketing budget is key to building

Social Responsibility

• Need to insert some specials etc which pat speaks to each quarter

17Our fundraising events have raised over $1,700,000

for various charities including the Children’s Miracle Network.

Page 18: Pizza Pizza Royalty Corp. · Traditional - Pizza Pizza Non-Traditional - Pizza Pizza Pizza 73 With over 730 restaurants across Canada, ... $30 million marketing budget is key to building

18

Financial Update

Page 19: Pizza Pizza Royalty Corp. · Traditional - Pizza Pizza Non-Traditional - Pizza Pizza Pizza 73 With over 730 restaurants across Canada, ... $30 million marketing budget is key to building

Organizational Structure

19

Shareholders

Pizza Pizza Royalty Corp.

Pizza Pizza Royalty Limited Partnership

Pizza Pizza and Pizza 73 Rights

Bank Indebtedness

Pizza Pizza Limited (privately-held)

Licence and Royalty

Agreements

19.9% 80.1%

Licence and royalty agreements with Pizza Pizza Limited provide cash flow stability to investors with limited operational risks.

Page 20: Pizza Pizza Royalty Corp. · Traditional - Pizza Pizza Non-Traditional - Pizza Pizza Pizza 73 With over 730 restaurants across Canada, ... $30 million marketing budget is key to building

Organizational Structure

20With a strong cash reserve in place, PPRC targets a payout ratio of 100%.

Restaurant Retail Sales

Royalty IncomeLess:

Admin. Expenses Interest,

and Taxes

Shareholder Dividends

Page 21: Pizza Pizza Royalty Corp. · Traditional - Pizza Pizza Non-Traditional - Pizza Pizza Pizza 73 With over 730 restaurants across Canada, ... $30 million marketing budget is key to building

0

150

300

450

600

05 06 07 08 09 10 11 12 13 14

90838077768181

33 415408402391380370390376

353335

Pizza Pizza Restaurants Pizza 73 Restaurants

409

471 468456451

505482

Royalty Pool System Sales

21

491

($ millions)

In 2014 the Royalty Pool Sales surpassed the $500 million mark.

Page 22: Pizza Pizza Royalty Corp. · Traditional - Pizza Pizza Non-Traditional - Pizza Pizza Pizza 73 With over 730 restaurants across Canada, ... $30 million marketing budget is key to building

$24.9M in Royalty Revenue $8.1M in Royalty Revenue

6% of System Sales 9% of System Sales

Royalty Revenues

22

Page 23: Pizza Pizza Royalty Corp. · Traditional - Pizza Pizza Non-Traditional - Pizza Pizza Pizza 73 With over 730 restaurants across Canada, ... $30 million marketing budget is key to building

System Sales Drivers

Royalty Pool System Sales are driven by:

• Same Store Sales Growth

• Customer Traffic

• Average Ticket

and

• New Restaurant Openings

23

Page 24: Pizza Pizza Royalty Corp. · Traditional - Pizza Pizza Non-Traditional - Pizza Pizza Pizza 73 With over 730 restaurants across Canada, ... $30 million marketing budget is key to building

-7%

-5%

-2%

0%

2%

5%

7%

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

YTD 2

015

4.9

1.12.12.72.6

0.0

-5.9

1.7

4.64.55.4

Same Store Sales Growth

24

(%)

Page 25: Pizza Pizza Royalty Corp. · Traditional - Pizza Pizza Non-Traditional - Pizza Pizza Pizza 73 With over 730 restaurants across Canada, ... $30 million marketing budget is key to building

-1%

0%

1%

2%

4%

5%

6%

7%

Mar-

14

Jun-14

Sep-14

Dec-14

Mar-

15

Jun-15

Sep-15

6.3%6%

2.5%2%

0.8%

-0.3%

1.6%

SSSG - Quarterly

25Consumer traffic growth is driving Same Store Sales Growth.

Page 26: Pizza Pizza Royalty Corp. · Traditional - Pizza Pizza Non-Traditional - Pizza Pizza Pizza 73 With over 730 restaurants across Canada, ... $30 million marketing budget is key to building

$0

$1,200

$2,400

$3,600

$4,800

$6,000

-7%

-4%

-1%

3%

6%

9%

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

SSSG Working Capital (‘000s)

1.12.12.72.6

0.0

-5.9

1.7

4.64.55.4

Sales Growth and Cash Reserve

26

Share buy-back

PPRC’s cash reserve is available to stabilize dividends in the event of short -to-medium term variability in System Sales.

Page 27: Pizza Pizza Royalty Corp. · Traditional - Pizza Pizza Non-Traditional - Pizza Pizza Pizza 73 With over 730 restaurants across Canada, ... $30 million marketing budget is key to building

$0.000

$0.010

$0.020

$0.030

$0.040

$0.050

$0.060

$0.070

$0.080

$0.090

$0.100

July-0

5

Nov-05

Feb-06

July-0

6

Jan-07

Sept-07

Jun-08

Jan-11

May-1

2

Jan -13

Jun-13

Jan-14

Apr-15

Nov-15

$0.0697$0.0680$0.0667$0.0650$0.0625

$0.0600$0.0584

$0.0775$0.0760$0.0730

$0.0710$0.0695$0.0681$0.0667

Tax+2.7%

Dividends Since IPO

27

+4.2% +4.1% +2.6%+1.9%

Since its IPO in 2005, PZA has increased its dividends 12 times.

+2.0%

Page 28: Pizza Pizza Royalty Corp. · Traditional - Pizza Pizza Non-Traditional - Pizza Pizza Pizza 73 With over 730 restaurants across Canada, ... $30 million marketing budget is key to building

2014 Performance Highlights

• Royalty Pool System Sales $505 M

• SSSG 1.1%

• Royalty Pool restaurants increased to 722

• $3.9 million working capital reserve

• Dividend increased 2.6% in January 2014

• Loan interest rate reduced 0.25%

• Adjusted earnings per share $0.861

• Dividends per share $0.8004

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Page 29: Pizza Pizza Royalty Corp. · Traditional - Pizza Pizza Non-Traditional - Pizza Pizza Pizza 73 With over 730 restaurants across Canada, ... $30 million marketing budget is key to building

Q3 ’15 Performance Highlights

• Royalty Pool System Sales of $133 M

• SSSG 6.3%

• Adjusted earnings per share $0.221

• Dividend increased twice in 2015

• Dividend per share $0.204

• Pay-out ratio = 96%

• Royalty Pool increased to 730 restaurants

• $4.4 million working capital reserve

29

Page 30: Pizza Pizza Royalty Corp. · Traditional - Pizza Pizza Non-Traditional - Pizza Pizza Pizza 73 With over 730 restaurants across Canada, ... $30 million marketing budget is key to building

Pizza Pizza Limited’s March 2015 Bought Deal

30

Public Float PPL Equivalent SharesFully-diluted

Shares

January 1, 2015 21,818,392 8,924,133 30,742,525

March 23, 2015 2,800,000 (2,800,000) -

Current 24,618,392 6,124,133 30,742,525

PPL, the private operating company, sells 2.8 million equivalent shares in a bought deal.

Page 31: Pizza Pizza Royalty Corp. · Traditional - Pizza Pizza Non-Traditional - Pizza Pizza Pizza 73 With over 730 restaurants across Canada, ... $30 million marketing budget is key to building

Credit Facility Renewal

31The early renewal of the Partnership’s credit facility resulted in

annual interest savings of $640,000.

New Facility Old Facility

Maturity April 24, 2020 December 6, 2016

Interest Rate 2.75% (1.875% + 0.875%)

4.12% (2.87% + 1.25%)

Annual Interest Savings $640,000

Page 32: Pizza Pizza Royalty Corp. · Traditional - Pizza Pizza Non-Traditional - Pizza Pizza Pizza 73 With over 730 restaurants across Canada, ... $30 million marketing budget is key to building

Shareholder Information

• TSX exchange listing PZA

• Publicly traded shares outstanding

24,618,392

• Fully Diluted shares 30,742,525

• Market Capitalization $435M

• Pizza Pizza Limited’s ownership 19.9%

• Current monthly dividend $0.0697

• Recent trading price $14.15

• Recent yield 5.9%

• Credit facility matures April 2020 $47M

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Page 33: Pizza Pizza Royalty Corp. · Traditional - Pizza Pizza Non-Traditional - Pizza Pizza Pizza 73 With over 730 restaurants across Canada, ... $30 million marketing budget is key to building

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